No gain or loss shall be recognized to the liquidating corporation on the distribution to the 80-percent distributee of any property in a complete liquidation to which section
332 applies.

(b) Treatment of indebtedness of subsidiary, etc.

(1) Indebtedness of subsidiary to parent

If—

(A)a corporation is liquidated in a liquidation to which section
332 applies, and

(B)on the date of the adoption of the plan of liquidation, such corporation was indebted to the 80-percent distributee,

for purposes of this section and section
336, any transfer of property to the 80-percent distributee in satisfaction of such indebtedness shall be treated as a distribution to such distributee in such liquidation.

(2) Treatment of tax-exempt distributee

(A) In general

Except as provided in subparagraph (B), paragraph (1) and subsection (a) shall not apply where the 80-percent distributee is an organization (other than a cooperative described in section
521) which is exempt from the tax imposed by this chapter.

(B) Exception where property will be used in unrelated business

(i)In general
Subparagraph (A) shall not apply to any distribution of property to an organization described in section
511(a)(2) if, immediately after such distribution, such organization uses such property in an activity the income from which is subject to tax under section
511(a).

(ii)Later disposition or change in use
If any property to which clause (i) applied is disposed of by the organization acquiring such property, notwithstanding any other provision of law, any gain (not in excess of the amount not recognized by reason of clause (i)) shall be included in such organization’s unrelated business taxable income. For purposes of the preceding sentence, if such property ceases to be used in an activity referred to in clause (i), such organization shall be treated as having disposed of such property on the date of such cessation.

(c) 80-percent distributee

For purposes of this section, the term “80-percent distributee” means only the corporation which meets the 80-percent stock ownership requirements specified in section
332(b). For purposes of this section, the determination of whether any corporation is an 80-percent distributee shall be made without regard to any consolidated return regulation.

(d) Regulations

The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of the amendments made by subtitle D of title VI of the Tax Reform Act of 1986, including—

(1)regulations to ensure that such purposes may not be circumvented through the use of any provision of law or regulations (including the consolidated return regulations and part III of this subchapter) or through the use of a regulated investment company, real estate investment trust, or tax-exempt entity, and

(2)regulations providing for appropriate coordination of the provisions of this section with the provisions of this title relating to taxation of foreign corporations and their shareholders.

1988—Subsec. (b)(2)(B)(i). Pub. L. 100–647, § 1006(e)(4)(A), (B), substituted “described in section
511(a)(2)” for “described in section
511(a)(2) or
511(b)(2)” and “in an activity the income from which is subject to tax under section
511(a)” for “in an unrelated trade or business (as defined in section
513)”.

Subsec. (d). Pub. L. 100–647, § 1006(e)(5)(A), in introductory provisions, substituted “amendments made by subtitle D of title VI of the Tax Reform Act of 1986” for “amendments made to this subpart by the Tax Reform Act of 1986”, and in par. (1), substituted “this subchapter) or through the use of a regulated investment company, real estate investment trust, or tax-exempt entity” for “this subchapter)”.

1987—Subsec. (c). Pub. L. 100–203inserted at end “For purposes of this section, the determination of whether any corporation is an 80-percent distributee shall be made without regard to any consolidated return regulation.”

“(i) the board of directors of a party to the reorganization adopted a resolution to solicit shareholder approval for the transaction, or

“(ii) the shareholders or the board of directors of a party to the reorganization approved the transaction.”

Amendment by Pub. L. 100–647effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) ofPub. L. 100–647, set out as a note under section
1 of this title.

Effective Date of 1987 Amendment

Amendment by Pub. L. 100–203applicable to distributions or transfers after Dec. 15, 1987, with exceptions for certain distributee corporations and distributions covered by prior transition rule, see section 10223(d) ofPub. L. 100–203, set out as a note under section
304 of this title.

Effective Date

Section applicable to any distribution in complete liquidation, and any sale or exchange, made by a corporation after July 31, 1986, unless such corporation is completely liquidated before Jan. 1, 1987, any transaction described in section
338 of this title for which the acquisition date occurs after Dec. 31, 1986, and any distribution, not in complete liquidation, made after Dec. 31, 1986, with exceptions and special and transitional rules, see section 633 ofPub. L. 99–514, set out as a note under section
336 of this title.

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